Morningstar | T-Mobile US Reported Mixed 2Q Results with Lower Revenue Growth, but Better EBITDA Margins
T-Mobile US reported mixed second-quarter results with revenue growth below our projections, but EBITDA margin higher. The firm reported service revenue growth of 6.5%, which was close to our full-year projection of 7%. However, equipment sales fell 7.2% pulling the total company revenue growth down to 3.5%. We expect to maintain our $73 per share fair value estimate and no-moat rating. We think T-Mobile is the safer way to play the potential merger with Sprint as it will also benefit from the cost savings and increased scale of the deal, but will perform much better as a stand-alone company if the deal falls apart.Importantly, T-Mobile continues to generate substantial wireless subscriber growth. The firm added 1.6 million customers during the quarter, including 686,000 branded postpaid phone customers. This is twice as many branded postpaid phone customers as Verizon, AT&T, and Sprint added combined. While we continue to believe T-Mobile's subscriber growth will slow at some point, there is no sign of it happening yet. However, the firm's branded postpaid phone subscriber base average revenue per user, or ARPU, did decline 1.2%. Management talked about stabilizing ARPU though, which along with the Sprint CEO's comments regarding balancing growth and profitability provide us with hope that the worst of the price wars are over. We were particularly impressed with T-Mobile's ability to bring its churn below 1% for the first time to 0.95%, which is down 15 basis points from the year-ago period and isn't much worse than AT&T's.
The firm is also benefiting from its increased scale, allowing it to generate an adjusted EBITDA margin of 30.5% versus our full-year projection of 27.2%. However, T-Mobile included $84 million from accounting changes and $70 million from insurance reimbursements from hurricane losses in its adjusted EBITDA. Additionally, the fourth quarter historically has lower margins, so we don't anticipate that this margin level is sustainable.
T-Mobile US provides mobile communications services, including voice, messaging and data, under its brands, T-Mobile and Metro? by T-Mobile, in the United States, Puerto Rico and the United States Virgin Islands. The company provides mobile communications services using its 4G Long-Term Evolution network and its 5G technology network. The company also provides various wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans and leasing through JUMP! On Demand?. The company provides reinsurance for handset insurance policies and extended warranty contracts offered to its mobile communications customers.
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